Nyree Applegarth, a Partner in the Higgs LLP Dispute Resolution and Litigation team, looks at new government legislation on Covid related rent arrears – and predicts high-level legal challenges.

The government has now published a policy paper entitled “Supporting Businesses with Commercial Rent Debts”.  It is an update on a statement made in June which highlighted that new legislation will be introduced in relation to binding arbitration to adjudicate on Covid related rent arrears. 

Whilst it is welcome that the government is being so proactive in bringing in new law to resolve disputes, no doubt there are going to be very mixed feelings for landlords and tenants about how this will leave them.

The relevant points from the statement are:

• The government will bring in new law to ring fence rent debt which has accrued during the pandemic by businesses which have been affected by enforced closures.  Parties will be expected to negotiate to try and reach a settlement and must use the arbitration scheme as a last resort. 

• The government is clear that tenants who have not been affected by closures and who have the monies to pay, should pay.  Tenants are also expected to begin paying rent from the point of restrictions being lifted for their particular sector. 

• The protection will only apply to ring fenced arrears as soon as the new legislation is passed.  It will apply to rent debt accrued from March 2020 by commercial tenants whose businesses had to be closed and until restrictions of their sector were removed.

Landlords will therefore be able to evict tenants for non-payment of rent prior to March 2020 and, after the moratorium on eviction has been lifted, on 25 March 2022.

Landlords are also unable to use statutory demands or winding up petitions to force payment of arrears until after 30 September 2021.  Given that landlords have very limited options for recovering arrears at present, there are a number of County Court proceedings ongoing and it is unclear how the new measures will affect any proceedings that are progressing through the Court. 

The proposal to ring fence rent arrears is unprecedented and questionable given that it retrospectively alters contractual rights that the parties freely negotiated.  It is likely to rewrite the terms of many commercial leases and is expected to be the subject of a number of high-level legal challenges.